Your last point really nails one of the most trouble-some issues for railways in our country. All these years, railways has been one of the largest sources of employment for skilled and unskilled labor alike. A move to more private means of transport over the years was simply in response to the increasing number of people requiring employment.
Automation in railways is being opposed severely as it would result in lack of employment opportunities for a significant sector of the population. Again, shifting traffic to railways from other well-established means is facing stiff opposition simply because it would deprive many people of employment. This is the reason why public transportation systems are being hampered by opposition from Taxi,...
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Auto and private transport lobbies, and why technology upgrades and automation are being opposed by labor unions. These people wont have anything to do if their jobs are taken away.
While these transitions are logically the correct steps to follow, our country simply has too much population for any of these steps to be implemented seamlessly or without impacting the livelihoods of others. It is an open problem and we have to only wait and see who can provide a sustainable solution.

IR of 109 indicates IR is moving continuously towards financial bankruptcy.
Biggest financial woes of IR and steps taken by IR towards their mitigation:
(1) Very high staff (pay perks pension) costs esp due to 7th pay recommendations- 75% of revenue- Nothing done
(2) Very high passenger subsidies (esp non ac classes) - Nothing done. Fare not hiked but miscellaneous charges like increased cancellation...
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charges, flexi-fares etc levied on a small section of paxs leaving 85 % (subsidied) paxs almost unaffected.
(3) High fuel costs- have been tamed to large extent through savings made through innovative approaches in electricity & diesel procurement.
(4) Large number of concessions & free passes- Nothing done
(5) Loss making non connected activities like schools, hospitals etc continue unabated
(6) Loss making pax trains- no step taken to make it rationalise such trains to make them profitable or reduce the losses.
(7) Inability to generate non fare revenues to prop up the finances- poor marketing performance
(8) Loss making projects - no critical evaluation done to existing loss making projects and make appropriate modifications to make the more profitable. However a decent success has been achieved in PPP projects and getting funds for IR through involvement of state govts.

Fall in ACII pax on Mum & AK Rajs is expected, but IR could still muster little bit higher revenues due to ACIII class. Presently ACII paxs are switching over to airlines. ACIII paxs currently have to pay through nose as they do not have alternative. There future depends on bus operators who, can wean away the flexifare paying ACIII paxs by providing deluxe ac sleeper buses in future.
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Since the demand supply gap in electric power has been filled by installing a large number of thermal power plants in last 2...
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decades, the incremental coal loading which kept IR cash registers ringing has become a thing of past. This gave the successive RMs enough leverage to pursue costly and loss making populist schemes at the cost of IR finances. So financially IR, which used to be a bed of roses have become a bed of thorns. Next few years, the scenario is likely tp be same as per the analysts studying the energy scenario. With more stress on environment friendly modes of power generation like Solar, wind etc, the prospects of polluting thermal power plants shall never be same, at it was in last 3 decades.